Why GPIF's re-alignment sets benchmark in Japan

The fund's move to repurpose its asset allocation and alter its management structure, as well as commit to improved governance, earns it an Institutional Excellence Award.
Why GPIF's re-alignment sets benchmark in Japan

AsianInvestor’s second annual Institutional Excellence Awards were introduced to highlight best practice, with awards handed out to 16 institutions collectively managing $3.5 trillion.

Continuing with our markets category, for Japan our judges selected the Government Pension Investment Fund for institutional excellence. They recognised the significance of its re-aligned asset allocation and management structure, in a determined drive towards best practice and departure from long-standing conservatism.

The winners were announced on October 30 and received their awards at an exclusive ceremony and dinner on December 2 at The South Beach hotel in Singapore. 

We thank all those who contributed their thoughts to these awards. The full list of write-ups appears in the December issue of AsianInvestor magazine, and more details of our decision-making process can be found here.

Markets category
Government Pension Investment Fund

The changes that have taken place at Japan’s Government Pension Investment Fund (GPIF) over the past 18 months have been both unprecedented and dramatic. In many senses they are emblematic of a revitalised nation.

The $1.3 trillion fund made a bold departure from long-standing conservatism by re-aligning its asset allocation and management structure to address asset-liability management needs.

From the end of October 2014, GPIF revised its policy asset mix and announced a medium-term allocation plan to pare its 60% domestic bond allocation to 35%, and increase domestic stocks from 12% to 25%.

At the same time it sought to increase its holdings of international stocks from 12% to 25% and international bonds from 11% to 15%, while introducing alternative investments, to a maximum 5% of the portfolio.

The fund subsequently revealed that Hiromichi Mizuno, a member of the investment advisory committee, would transfer to become GPIF’s first ever chief investment officer from January this year. He had only been hired a few months before from UK private equity firm Coller Capital.

The thinking was he would bring expertise to GPIF, taking best practice from the likes of the Canadian Pension Plan Investment Board and Singapore’s GIC.

GPIF now aims to bolster its investment capabilities. Its president, Takahiro Mitani, said: “We are enhancing our internal controls and risk management structures, and we are developing human resources with expertise to further improve our investment capabilities.”

Additionally, GPIF has sought to improve governance in corporate Japan, committing to the Stewardship Code – introduced to promote sustainable growth of companies through investment and dialogue – and requiring commitment from external asset managers.

In overhauling its equity portfolio GPIF added three benchmark indices to include the JPX-Nikkei 400, comprising firms selected for higher return-on-equity and profits.

It also introduced a performance-based fee structure for active managers, replacing its fixed-fee approach, and altered its selection process for external managers by giving more weight to their investment processes and not just performance.

The impact of GPIF’s determined drive towards best practices will be broadly felt, given the institution's leadership position in Japan’s pension funds industry.

2015 winners already unveiled:

Institutional category

Reserves manager: Monetary Authority of Singapore

Sovereign wealth fund: GIC

Insurance company (general account): Ping An Life  

Public pension fund: Bureau of Labor Funds

Private pension fund: Jardine Matheson

Endowment: National University of Singapore

Markets category

Australia/New Zealand: the Future Fund

Mainland China: China Life Insurance

Hong Kong/Taiwan: Cathay Life Insurance

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